I wrote the following late last year. Little has changed. I offer it again to those wondering what we must do to bring capitalism back under democratic control as part of the widespread demand that we create social justice in our country and throughout the world.

7 Responses

The fundamental problem is that there appears to be a genuine conflict between a just system of taxation and maximising revenue. Essentially, it is the question whether you want 30% of a lot or 70% of a little. The answer to that is at least as much a question of ideology as of mathematics and economics.

“I think land value tax is important. I do not think that it can for a moment replace other taxes. The injustices would be huge and massively socially destructive.”

OK. So can you explain why home buyers should continue paying mortgages to an insolvent banking system for private gain, when it is socially and government-generated land location value which is the root source of mortgage payments?

If existing mortgage borrowers swapped their mortgages for LVT style payments to government, wouldn’t this at once solve the current problems of government finance, and immediately reform the banking sector too?

This is a policy whose only downside is to bankers and their industry, hoping for a resumption of mega-profits in the next few years.

Implementing a voluntary policy of swapping mortgages for LVT-like payments is simple with “Location Value Covenants” developed by the Systemic Fiscal Reform Group. So far *no* significant downsides or barriers have been raised – political, financial or economic.http://www.systemicfiscalreform.org/Home/land-value-covenants

I don’t really get you about bank failure and destruction. I pointed out that the reform reduced future banking profitability. You then reject the proposal as having “massive social cost” from “bank failure”. I think this is mistaken.

If the business activity of the banks is reduced, they employ fewer people. This increases real economic productivity, which is a good thing, yes? This happened in loads of industries over the centuries – stabling for horses, chimney cleaning, sail making. Farming is a great example of dramatically boosted productivity and reduced labour requirement.

In many cases, the fall in demand and profitability of banking services would result in mergers and acquisitions, followed by streamlining. Perhaps a reasonable size and economic burden of the banking industry would be comparable to that of the electricity transmission network.

Of course bank balance sheets would be protected when mortgage debt is acquired through the issue of treasury notes in exchange. Location Value Covenants pose no new risk to the safety of bank depositors or bondholders. Indeed by permitting the expansion of the economy, the value of the currency is preserved.

The banks’ main business model – creating new government fiat money against land titles is *entirely* bogus. And it removes the natural source of income for governments to provide local services (ie almost all of them). Hong Kong has, by historical quirk (because of Britain’s 99 year lease blocked land sales), avoided this, and in consequence has had low taxes, economic vibrancy and is now running chronic budget surpluses. The solution to their surplus is to distribute it as a regular dividend to citizens.

I’m now somewhat puzzled. I had thought that you recognised the bankers were “taking the mickey”, and bankers taking home giant bonuses demonstrated a major flaw in the system. I explain the bogus origin of these bonuses, and a remarkably simple reform to rapidly restore health to government finances, reduce taxes on production and cut banker welfare transfers and the upward redistribution of wealth. And it seems that your concern switches to the need to protect the future profits of the banking industry!

Your three statements here prove you understand the issues:

“Given that finance is squeezing the life out of the real economy then there is no doubt at all that we could have more tax without the City”
“I think land value tax is important”
“The injustices would be huge and massively socially destructive”

If you carefully analyse the economic and financial stocks and flows of the economic actors (bank, home buyer, government, real economy), you will realise that the injustices and political barriers to LVT *are* readily soluble through the instrument of LVCs. These are the right way to reduce chronic banker subsidies (and shut down tax havens for good!).

So I see nothing in the Location Value Covenant model which would not meet the strong approval of you and your associates.